To no surprise, Gold and Silver are trading lower on the first day following the election.
For months, everyone has been talking about holding precious metals as a hedge for what could have happened after the elections.
Angry mobs in the streets, uncertainty over who would be running the nation, financial markets collapsing? Everything was on the table depending on what you were reading.
But now, with the election all but over, investors are cashing in their gold and moving on.
Sure, the election added some certainty to the market for the next three months. But the bull market in Gold goes much deeper than trying to avoid volatility in the market.
Investors that take a few minutes to consider where things are likely to go in 2025 will take today’s 3% drop as an opportunity to “buy the dip” in gold.
On its surface, the rally in gold could be pinned to the election, but there have been other, more powerful, drivers behind gold’s one-year 25% performance.
Central banks have been hording gold for the last two years, dwarfing demand over the previous ten years.
The root of the reason is basic. Central banks can potentially protect their government from significant currency risks by holding gold. In the event of a currency collapse – we’ve seen a few - the country would have a means to financially recover thanks to its gold reserves.
This simple math dials up to calculus when countries start to plan for the possibility that the U.S. Dollar could lose its status as the World’s reserve currency.
That’s the long game on gold and why it remains an attractive holdings for most investors.
Look at the bond market today.
The chart below shows the long-term 20+ Year Treasury Bond ETF (TLT), which dropped more than 3% after the election results hit the headlines.
That’s the bond market throwing a red flag in front of the market as a warning.
That one thing that we’ve struggled through, inflation, may be ready to rear its ugly head again. That’s part of what the bond market is saying.
Remember, the old saying “bond traders are the smartest in the room”? If you don’t you need to learn it.
Over the last three weeks, as we’ve heard rumblings that Donald Trump could run away with the election, the bond market has been preparing for a significantly rough 2025.
The implications include:
All of this would be considered a catalyst for the long-term bull market in gold to continue.
Markets react to events. Sometimes they overreact to events. That’s what today’s move in gold looks like.
Sellers of gold are breathing a sigh of relief that nothing terrible happened to the election.
Volume is heavy on Wednesday selling, suggesting that this is a washout for the election trade.
We’re in for another long rally in gold if there was only a 3% election fear premium in gold’s price. That 3% makes sense since we saw gold rally just under 5% in the last three weeks as the election suspense built.
Looking at the longer-term chart, gold trades in a strong intermediate-and long-term trend, putting momentum on its side as the election buzz dies down.
We’ll see support at the 50-day moving average for the SPDR Gold Fund (GLD) at $240-$243.
A successful bounce from that prices ill start the rally cycle all over again as investors begin to realize that 2025 will come with its economic challenges.
The long-trend favors the gold bulls with a target of $280-$290 over the next three to four months.
